Viasat’s Stock Plunge Shows Why Elon Musk’s SpaceX Strategy Might Be Right

The question for companies launching satellites into orbit is this: Is it better to go big or go small? Viasat is betting on a few, expensive, technically complex satellites to beam data back to Earth. in contrast, SpaceX is betting on many, cheaper satellites to do essentially the same thing.

Viasat (ticker: VSAT) late Wednesday disclosed a problem with one of its new ViaSat-3 satellites. An “unexpected event” happened during reflector deployment that may impact the satellite’s usefulness. The reflector is essentially the dish-like part of a satellite that collects and focuses data streams.

The ViaSat-3 satellite was launched into space in May aboard a SpaceX Falcon Heavy rocket.

“We’re disappointed by the recent developments,” said CEO Mark Dankberg in a news release. “We’re working closely with the reflector’s manufacturer to try to resolve the issue. We sincerely appreciate their focused efforts and commitment.”

Viasat stock was falling by more than 30% in early Thursday trading at $30 a share, while the

S&P 500
and

Dow Jones Industrial Average
were up about 0.5% and 0.2%, respectively. The drop wipes more than $1 billion off its market capitalization.

The cost of the ViaSat-3 satellite is the likely reason. It’s estimated to be worth $700 million. The company didn’t immediately respond to a request from Barron’s for comment about the cost or issue.

William Blair analyst Louie DiPalma wrote Thursday that insurance should help Viasat recover some money. “This stock selloff is largely driven by emotion as there are a number of mitigating factors that soften the blow,” wrote DiPalma, adding “this setback is particularly frustrating for ViaSat employees, suppliers, customers, and investors as this satellite was eight long years in the making.”

He rates shares Hold and doesn’t have a price target for Viasat stock.

The part supplier wasn’t disclosed by Viasat. DiPalma wrote it could be

Northrop Grumman

(NOC) or

L3Harris Technologies

(LHX).

Boeing

(BA) has a role in the ViaSat-3 construction and commissioning too. All three of those stocks are up in early trading Thursday.

L3Harris told Barron’s they don’t make the part in question. The other two companies didn’t immediately respond to a request for comment.

Viasat is building a three-satellite constellation with new ViaSat-3 assets to provide global broadband coverage, among other services it provides for companies and governments. It’s a small-number-expensive-satellite strategy for building its space-based business. (Viasat generated $2.6 billion in sales in the calendar year 2022, roughly flat with 2021 sales).

SpaceX is taking the opposite approach. It’s launching thousands of small, lower- cost satellites to make its Starlink constellation that also delivers internet access to hard-to-reach areas of the earth as well as planes and ships.

In the end, it should cost SpaceX more to build its competing satellite constellation. Estimates are all over the place but Elon Musk’s company likely will spend north of $10 billion before it’s finished building out its network infrastructure to a desired level. Expensive, but the SpaceX strategy means losing a few satellites isn’t much of a setback. It also means that next-generation satellite technology reaches space faster. It’s not big a deal to replace a cheap satellite.

The ViaSat-3 constellation might cost $2 billion to $4 billion to build. But with three satellites, the loss of one is a big problem. At least that’s what the market is saying on Thursday.

Write to Al Root at [email protected]